Shares of PNC Bank Corp. and American Express Co. surged in heavy trading Tuesday after investor Warren E. Buffett disclosed that he has accumulated large stakes in both companies.
American Express rose $1.375, to $33.50, on news that Mr. Buffett had increased his stake to 9.8%.
PNC shares rose 75 cents, to $24.875, amid a broad-based bank and bond rally after Mr. Buffett disclosed he had accumulated 8.3% of the shares.
The purchases, disclosed in filings with the Securities and Exchange Commission, make Mr. Buffett the largest shareholder in both companies.
Analysts noted that Mr. Buffett's faith in PNC may already be partially reflected in the price: The stock rose at the end of last year when rumors surfaced that he had acquired about 3% of the stock.
Mr. Buffett, who heads Berkshire Hathaway Co., Omaha, is best known in the banking industry for his opportunistic investment in Wells Fargo & Co. in 1990 when concern over the California economy had depressed the stock to $47 a share.
Since then, Wells' stock has since soared as high as $160.
The new PNC investment is the famed investor's second buy into a major U.S. bank. He also owns positions in two smaller banks - Firstier Financial Inc. and First Empire State Corp.
Because of his following in investment circles, his interest in the companies can be expected to attract other buyers, and thereby create a floor for the stocks' prices.
"This is classic Warren Buffett style: get into the stock when it is down and out of favor," Anthony Davis of Dean Witter Reynolds Inc. said of PNC. "As time passes, PNC will do a good job of managing the branch network, and there is still a lot of efficiency to wring out of that network."
Since it hit $20.125 near the close of last year after the company reported low earnings due to a shrinking net interest margin, PNC stock has risen 20%. So Denis Laplante of Fox-Pitt Kelton questioned whether the time to purchase PNC stock has already passed.
There are critical differences between an investment in Wells five years ago and an investment in PNC today, Mr. Laplante said.
When Mr. Buffett invested in Wells Fargo, investors were down on the company, but management said earnings would grow. Wells Fargo did improve, and Mr. Buffett's investment proved fortuitous.
PNC's management, in contrast, is sending signals it does not expect solid growth for the next few years, Mr. Laplante pointed out.
"I have a difficult time seeing PNC earnings above three bucks for the year in 1996, and that is even with a close to zero loan-loss provision," he said.
PNC's earned $2.57 per share last year, he said.
The real question is whether Mr. Buffett will continue to buy into PNC as part of a longer-range strategy, he said.
In his American Express filing, Mr. Buffett indicated he would seek to increase his stake in that company beyond 10%.
Before the most recent purchase, his stake in American Express totaled roughly 5%, which he bought three years ago. He now owns 9.8%.
Unlike many of his other purchases, American Express was not a depressed stock. In fact, it outperformed the market last year.
Still Mr. Buffett could be in a good position, said Alison A. Deans of Smith Barney Inc. "If the growth prospects are remotely close to what management have set, then it is not fully reflected in the stock," she said.